Question

The Lancaster Chocolates Company produces Chocolate. The first process is to refine the chocolate into syrup in a joint costing process at a cost of $540,000. Then the Chocolate is split off into which produces three separate products: A Bars, B Bits, and C Grade Syrup (no further processing required.) A Bars for from the Syrup Department to be processed further in the molding department with a cost of $120,000. B Bits go from the Syrup Department to be processed further in the Chipping Department. And the Raw Syrup be sold immediately as C Grade Syrup. The following information relates to October:

Syrup Department (Joint) costs $540,000.
Molding Deparmtent costs $120,000.
Chipping costs $300,000.

A Bars: 25,000 pounds completed; 23,500 pounds sold for $12 per pound.
B Bits: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound.
C Grade Syrup: 50,000 pounds completed; 46,000 pounds sold for $5.00 per pound.

There were no beginning inventories.

Required:

Allocate the joint process costs to products A Bars, B Bits, and C Grade Syrup assuming the estimated net realizable value method is used.
Allocate the joint process costs to products A Bars, B Bits, and C Grade Syrup assuming the physical quantities method is used.

Determine which products should be processed further.

Answer 1

The Lancaster Chocolates
Workings for NRV	A	B	C=A*B
Calculation of final sales value	Qty.	Sell Price	Market Value
Bars	25,000.00	12.00	300,000.00
Bits	75,000.00	7.50	562,500.00
Grade Syrup	50,000.00	5.00	250,000.00
Total	150,000.00		1,112,500.00
Calculation of NRV	Bars	Bits	Grade Syrup	Total
Market Value	300,000.00	562,500.00	250,000.00	See C
Further processing costs	120,000.00	300,000.00	-
NRV	180,000.00	262,500.00	250,000.00	692,500.00
Weight of NRV	25.99%	37.91%	36.10%	F
	G	See F	H=F*G
Allocation of Joint costs	Joint Cost	Weight of base	Allocated cost
Bars	540,000.00	25.99%	140,361.00
Bits	540,000.00	37.91%	204,693.00
Grade Syrup	540,000.00	36.10%	194,946.00
Total			540,000.00
	A	B	C=A/ Sum of A	D=B*C
Physical quantities method	Qty.	%	Joint Cost	Allocated cost
Bars	25,000.00	16.67%	540,000.00	90,000.00
Bits	75,000.00	50.00%	540,000.00	270,000.00
Grade Syrup	50,000.00	33.33%	540,000.00	180,000.00
Total	150,000.00			540,000.00
Products should be processed further:	Bars	Bits	Grade Syrup
Market Value	300,000.00	562,500.00	250,000.00
Less: Joint costs	90,000.00	270,000.00	180,000.00
Less: Further processing costs	120,000.00	300,000.00	-
Profit/ (Loss)	90,000.00	(7,500.00)	70,000.00
Remarks	Process	Not Process